Some Steel Sector Indicators

Editor's note: This article was originally published on March 6, 2018, by Menzie Chinn here.

Which should give you pause for thought about national security-rationalized tariffs. Output stable, real prices up.

Figure 1: Raw steel production, 2012=100, Seasonally Adjusted (blue, left log scale), and Producer Price Index for Cold Rolled Steel Sheet and Strip, Jun 1982=100, Monthly, Not Seasonally Adjusted deflated by CPI less food and energy, seasonally adjusted (red, right log scale). NBER-defined recession dates shaded gray. Source: Federal Reserve Board and BLS via FRED, NBER, and author's calculations.

The recovery has been driven in part by already implemented trade measures (anti-dumping, safeguard), so not asserting that we shouldn't try to mitigate the effects of excess steel capacity abroad. Rather, it's not clear that Section 232 is the way to go.

From Paletta and Dawsey in WaPo:

Defense Secretary Jim Mattis and Secretary of State Rex Tillerson privately warned senior trade officials on Tuesday that President Trump's proposed tariffs on steel and aluminum could endanger the U.S. national security relationship with allies, according to five people familiar with the meeting.

Comments

[Pompano Frog]

Dear Reader..

Only a professor could come up with such an analysis.

Companies that need to borrow need to have an EBITDA return on revenue of at least 8% over an economic cycle. EBITDA is earnings before interest taxes and depreciation.

Steel companies are earning little at existing prices. U.S. steel has $12 billion in current revenue.

The net earnings estimates for 2019..2019 are $4.25 per share. There are 176 million shares outstanding. That is a profit after tax of $748 million.

To keep U.S. steel under American control costs under $1 billion in additional costs. But, that does not count the benefits from more jobs, more capital expenditures and more profits..for Americans.

If subsidizing steel is such a bad idea why does China, Singapore, Japan, Taiwan and South Korea spend so much in their precious resources in this task? That should be your main thought on this issue.